In his most recent blog post, published on January 19th, former BitMEX exchange CEO Arthur Hayes projected a “global financial meltdown” due to upcoming economic troubles in the United States. According to Hayes, the recent Bitcoin surge is not indicative of the beginning of a new bull run, and crypto assets will “get smoked” when the Federal Reserve changes its policy from restrictive to liberal.
The Federal Reserve has been the focus of almost all cryptocurrency analysts this year as they speculate on the likelihood of a policy “pivot” away from quantitative tightening (QT) and interest rate hikes toward flat and then decreasing rates, and possibly even quantitative easing (QE), in response to the slowdown in U.S. inflation.
Two Scenarios Playing out for Bitcoin
Talking about Bitcoin’s recent surge, Hayes theorized two scenarios driving the recent Bitcoin rally. The first (Scenario 1) is that Bitcoin is simply making a normal correction after hitting a local low below $16,000, in which case the cryptocurrency might remain rangebound “until USD liquidity conditions improve.”
Another explanation for the uptick is that investors are responding to the December decline in inflation to 6.5%, as reported by the Bureau of Labor Statistics in their most recent Consumer Price Index data. In Hayes’ view, the number might be seen as evidence that the Federal Reserve would “pivot” away from its hawkish monetary policy in the near future.
In light of this, investors may rush to stock up on cryptocurrency at rock-bottom prices before the Fed unleashes a torrent of fresh liquidity. Per Hayes, if the Federal Reserve does not change course, the market will return to its previous lows (Scenario 2A), but it will continue to rise if the Fed does (Scenario 2B).
“Obviously, we all want to believe that we are headed toward Scenario 2B,” wrote Hayes. “That said, I think we are actually going to be facing some combination of Scenarios 1 and 2A — which is causing my itchy “Buy” trigger finger to hesitate a bit,” he wrote.